In determining whether an exclusion is unconscionable, courts examine the circumstances existing when the contract was signed, asking whether there was reason to conclude that the parties could not competently agree upon the allocation of risk. Courts are more likely to find unconscionability when a consumer is involved, when there is a disparity in bargaining power, and when the consequential damages clause is on a pre-printed form; conversely, they are unlikely to find unconscionability when such a limitation is freely negotiated between sophisticated parties, which will most likely occur in a commercial setting.
After finding that Catalina Yachts, a sailboat manufacturer, breached its limited warranty to repair a defect in a boat that it sold to Jim and Karen Pierce, a jury awarded the Pierces monetary damages for the reasonable cost of repair. Before submitting the case to the jury, the trial court dismissed the Pierces' claim for consequential damages, finding it barred by an express provision in the warranty. On appeal, the Pierces contend that they were entitled to consequential damages despite this provision. We agree, holding that because Catalina acted in bad faith when it breached the warranty, the company cannot conscionably enforce the warranty's provision barring consequential damages. Accordingly, we remand for a trial to determine consequential damages.
Could Catalina Yachts bar the enforcement of the warranty even though they acted in bad faith?
The court held that that because appellee acted in bad faith, it could not conscionably enforce a warranty's provision barring consequential damages. UnderAlaska Stat. § 45.02.719(b) the appellants could pursue consequential damages. The nature of the appellants' warranty and the circumstances surrounding breach weighed heavily against enforcing a consequential damages bar. To prevail on their deceptive practices cause of action, appellants had to prove not just that appellee had notice of potential defects but also that these defects actually existed. Appellants failed to demonstrate abuse of discretion in the trial court's exclusion of evidence. Appellants were entitled to an award of attorney fees. The court remanded for a trial to determine consequential damages.